Cryptocurrency alone will not allow Russia to circumvent a barrage of sanctions aimed at punishing Moscow for invading Ukraine, cryptocurrency analysts told Al Jazeera.
The United States, the United Kingdom, the European Union and Canada announced new sanctions on Monday, this time targeting the Russian Central Bank and the National Wealth Fund. The US Treasury said it is limiting Russian President Vladimir Putin’s ability to use the country’s $630 billion in foreign reserves.
The move came just a day after the United States and its allies cut some Russian banks off from SWIFT (the Society for Worldwide Interbank Financial Telecommunication), a secure messaging network used for trillions of dollars worth of transactions.
The Russian economy was already reeling on Monday. The ruble fell to an all-time low, the central bank raised the key rate to 20 percent, and the stock exchange remained closed.
Enforcement of sanctions requires the ability to track transactions – usually through the banking system. Both Iran and North Korea have used cryptocurrencies, which operate outside the confines of the financial system, to get around the sanctions.
“Cryptocurrencies can be used to evade sanctions and hide wealth,” Roman Beda, head of fraud investigations at Coinfirm, a blockchain risk management platform, told Al Jazeera.
But crypto experts told Al Jazeera that the case of Russia is different, as the country has less room to maneuver due to the scale of the economic hit and its limited adoption of digital currencies.
Replace hundreds of billions of dollars
Unlike North Korea, Venezuela and Iran, Russia has been deeply entrenched in the global financial system for decades, Ari Redboard of TRM labs, a blockchain intelligence firm, told Al Jazeera. Eighty percent of its daily transactions are in foreign currencies and half of its international trade is in dollars.
“It is very difficult to move large amounts of cryptocurrency into usable currency,” Redboard said. “Russia cannot use cryptocurrencies to exchange hundreds of billions of dollars that could be blocked or frozen.”
Measures have also been put in place to stop sanctions evasion via cryptocurrencies. In the blockchain ledger – where cryptocurrency exchanges are published – each transaction and the address associated with it can be publicly displayed.
Coinfirm’s Beda told Al Jazeera that while penalizing governments cannot know who is the owner of an address sending the cryptocurrency, they can see the size of the flow — in other words, how much money is being transferred. Once a suspicious address is flagged, these funds can be monitored.
Cryptocurrency mining with surplus power is an option but not enough
Oil and gas is one of the sectors of the Russian economy that has not been targeted by sanctions, although companies including Shell and BP have announced they will withdraw their business from the country.
Russia is one of the world’s largest oil exporters — 25 percent of European oil comes from Russia, according to Rystad Energy, an Oslo-based research firm. The country also supplies about 40 percent of Europe’s natural gas.
If future sanctions target the energy sector, Moscow could emulate Tehran by using surplus capacity or computing power to generate cryptocurrency, Tom Robinson, co-founder of London-based blockchain analytics provider Elliptic, told Al Jazeera.
“Cryptocurrency mining allows them to monetize their energy reserves in the global market, without having to physically move them out of the country,” Robinson said.
But this is likely to be just a drop in the sea of a major oil and gas exporting power like Russia.
At the moment, it appears that sanctions on oil and gas are unlikely, Rystad Oil analyst Louise Dixon told Al Jazeera.
“A disruption to supplies of up to 5 million barrels per day of Russian oil will not only deepen an already fragile energy crisis globally, but Russia may interpret it as an act of war,” she said.
Reducing the global role of the dollar
US Treasury Recently He warned that digital currencies and alternative payment platforms could undermine the effectiveness of US sanctions.
According to the blockchain data platform decompositionRoughly 74 percent of ransomware revenue in 2021 — more than $400 million in cryptocurrency — went to entities “highly likely to be affiliated with Russia in some way.”
New technologies have enabled malicious actors to hold and transfer money outside the traditional dollar-based financial system, according to the Treasury, while empowering “adversaries who seek to build new financial and payments systems aimed at diminishing the global role of the dollar.”
Although sanctions against Russia are designed to put pressure on Moscow, they may speed up the arrival of the new financial system that the United States has warned against, Ryan Selkis, founder of crypto research firm Misari, told Al Jazeera.
“Kicking Russia out of the SWIFT system and losing access to its reserves will accelerate the de-dollarization of trade,” Selkis said. “I don’t think the West thinks the dollar will move at all.”
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